Citigroup, Inc. Earnings: Can the Bank Stop Its Tailspin?

Investors expect further drops in revenue and earnings for the banking giant.

On Monday, Citigroup (NYSE:C) will release its quarterly report, and investors have a lot of uncertainty about the bank's ability to keep growing in light of recent setbacks. With even the arguably healthier Wells Fargo (NYSE:WFC) having seen revenue drop due to lower total loan volume, Citigroup faces an uphill battle to buck the trend and find ways to boost its business even as competitive pressures from Bank of America (NYSE:BAC) and other big-bank rivals fight hard to win market share in the industry.

Many investors put Citigroup in the same category as Wells Fargo, Bank of America, and other big U.S. banks, given its stature in the U.S. deposit market. Yet Citigroup has unique qualities, one of the most important of which is its commitment to its global scope. As a result, Citigroup has opportunities in overseas markets that its U.S. rivals choose not to pursue, but it also carries additional risks that its peers avoid. Is global domination the key to Citigroup's future growth? Let's take an early look at what's been happening with Citigroup over the past quarter and what we're likely to see in its report.

Stats on Citigroup

Analyst EPS Estimate

$1.06

Change From Year-Ago EPS

(21%)

Revenue Estimate

$18.91 billion

Change From Year-Ago Revenue

(7.7%)

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

When will Citigroup earnings start to grow again? In recent months, investors have gotten much more pessimistic in their views on Citigroup earnings, cutting second-quarter estimates by $0.16 per share and reining in full-year 2014 and 2015 projections by 3% to 4%. The stock has gone nowhere, climbing less than 1% since early April.

Citigroup's first-quarter earnings report gave shareholders some welcome good news, especially given that the Federal Reserve had just rejected Citigroup's proposal to raise its dividend and start returning more capital to shareholders. Adjusted net income rose from year-ago levels, and the bank continued to wind down its holdings of bad assets under its Citi Holdings unit, working to rid itself of the lingering impact of the financial crisis. Yet like Wells Fargo and Bank of America, Citigroup struggled from poor results in its mortgage-lending division, and Citi also had to deal with reduced revenue from its trading unit due to the unpredictable interest rate environment.

Yet Citigroup still has a long way to go to catch up to its peers in many ways. For instance, from 2011 to 2013, Bank of America and Wells Fargo reduced their provisions for loan losses by more than 70%, but Citigroup's credit-quality improvement has been a lot slower, with provisions declining by less than a third over the same time period. Much of the trouble is coming from Citigroup's foreign exposure, with Latin American consumer credit loss provisions actually having jumped by almost a third during the past few years. Similarly, overseas risks for Citigroup have ballooned in other areas, with a downward revision earlier this year resulting from client fraud in its Mexican lending operations and with concerns that similar problems involving collateral fraud might have occurred in China recently.

Litigation risk has also continued to plague Citigroup. Just earlier this week, reports suggested that Citigroup could pay as much as $7 billion to settle allegations that it engaged in abusive behavior in nits mortgage-lending practices prior to the financial crisis. Citigroup isn't the only bank that's been on the hook for similar liability, with Bank of America facing similar charges and some other banks already having settled mortgage-abuse allegations. Nevertheless, a settlement of that magnitude would represent several months' worth of net income and remind investors that one-time charges for past behavior might not be over and done with just yet.

Still, the big question for Citigroup investors is whether the stock already reflects these challenges. Citigroup at an even bigger discount to book value than Bank of America, and its valuation is a lot more attractive than Wells Fargo.

In the Citigroup earnings report, watch to see how the company's numbers compare with Wells Fargo's release on Friday. If it can keep its loan losses moving downward and stabilize its poorer-performing business units, then Citigroup could give investors a nice surprise on Monday.

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Dan Caplinger owns shares of Apple and warrants on Bank of America and Wells Fargo. The Motley Fool recommends and owns shares of Apple, Bank of America, and Wells Fargo. It owns shares of Citigroup. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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